It looks as if we’re going to get a two-part fiscal cliff deal: Congress will finish voting on part one tomorrow or Wednesday, and part two at some point in the near future, although it’s possible they’ll wind up getting merged. It’s important to get all the details on these things, but based on what is being reported so far, it appears to be a deal that liberals should be able to live with — pending part two.
Here’s where things sit as of now. Mitch McConnell says that a deal has been reached on the tax side of the fiscal cliff. In fact, it appears that the deal includes everything except the sequester — remember, that’s the across-the-board spending cuts, half from defense and half from domestic programs, which were supposed to be so odious that everyone would cut a different deficit-reducing deal to keep them from taking effect. But everything else is apparently included. It’s not clear whether the Senate will try to act sooner, but the House is currently planning to wait until at least tomorrow to take up whatever the Senate does. Technically, then, we’ll be “over” the cliff — although if Congress really acts in the next couple of days, the only real effect will be that Republicans can claim that they’re voting for a tax cut (from the reset higher rates) instead of a tax increase (from the Bush-era rates). Even though the result will be exactly the same.
The headline surface number is going to look like at least a partial victory for Republicans: Tax rates would only go up beginning at $400,000 ($450,000 for families). That’s a lot higher than the rate Barack Obama wanted tax hikes to kick in. But Democrats win on some other details, leading to some $600 to $800 billion in new revenues, depending on exactly how the details shake out and how things are scored. That’s quite a bit less than what Obama wanted — but it’s only part one of the deal, and in his statement today he made it clear he will be fighting for more revenues in part two.
Meanwhile, in addition to cancelling middle-class tax hikes from Bush-era rates expiring, Democrats win several things, including an extension for unemployment insurance and extensions of several key tax provisions for the middle class and working poor, including the enhanced child tax credit and earned income tax credit. Those last few items also provide economic stimulus, so they’re good for the economy as a whole, in addition to addressing liberal concerns about fairness. And the deal takes care of the doc fix for another year, which is excellent for doctors but not really something that should be scored as a win or loss for either party.
What do liberals lose in the deal? In addition to the headline tax rate number, there’s no renewal of or replacement for the payroll tax cut. As Suzy Khimm points out, that means that most people will have a tax increase in the new year, despite the president’s claim otherwise today. Of course, that was already assumed gone, but this deal confirms it. Also, there’s no new infrastructure spending in this deal, although that could show up in the future.
And that gets us to part two. Remember the sequester? It’s still, as of now, going to take effect. But the two sides will continue to negotiate that — and they’ll do it with the debt limit still out there, since part one doesn’t touch that either.
The assumption is that part two will involved kicking the sequester down the road before replacing it. Will that be for three months? For a year? With some sort of new failsafe? Without one? We don’t know yet. But it means we’ll have continuing negotiations to replace the sequester, with Republicans pushing for an all-spending-cut approach and the president, as he said in his statement today, working for a “balanced” replacement that’s half tax increases.
And really, there’s no way to finally evaluate the final deal until we see the second part of it.
My general sense is that this deal, if it holds — and at this point we don’t even have bill language, at least not publicly, let alone actual votes in the House and the Senate — is quite similar to other deals over the last couple of years, in which Democrats took a hit on a headline surface number but actually did fairly well. Of course, that doesn’t mean the set of policies going forward is what liberals would prefer, but that’s not going to happen with a Republican House. AndiIt’s not the policies conservatives would prefer, either.
But again, the key here is that, notwithstanding my initial guess that it seems to be a reasonable deal, the truth is it’s extremely hard to evaluate these things even when everything is done and public, and we’re really not there yet.